Barometer: Analyzing Q4 portfolio trends

Our Portfolio Construction Solutions team examines how advisors have adapted their portfolios to changing market conditions. 

As we look back to the final quarter of 2025, we can point to a series of distinct advisor allocation trends: a consistent move toward lower beta, reduced correlations and more deliberate style and sector positioning.

What stood out to us was:

• A weakening dollar, strong local returns and changing sentiment combined to push advisors’ global equity allocations higher. 
• International equity correlations further diverged from US equity market behavior. (This was in stark contrast to the elevated cross-asset correlations observed earlier in the year).
• Fixed income, with healthy returns across the board, more than fulfilled its role as a portfolio stabilizer.
• Moderate advisor portfolios closed 2025 with a distinct tilt toward active management, reflecting an outlook that remained constructive yet increasingly risk‑aware.

The tail-end of 2025 offered its fair share of mixed messages. The drumbeat of the market broadening thesis, for one, remained steady through the end of 2025 — but was mainly ignored by markets as large-cap stocks continued to march higher.

We also saw how international equities further diverged from US equity market behavior, a stark contrast to the elevated cross-asset correlations observed earlier in the year after Liberation Day. Heightened trade tensions in Q2 helped reignite uncertainty in this area, encouraging risk-off positioning, weakening traditional co-movement among asset classes and ultimately realizing diversification benefits. We saw a meaningful reduction in domestic equity exposure across portfolios as a result.

Developed international exposure was a prime beneficiary, rising two percentage points to 17.1%, supported by improving fundamentals and resilient performance even as the US dollar leveled off late in the year. 

Regional positioning within international allocations shifted as well, with notable increases in Europe and Asia‑Pacific, while allocations to North America, ex‑US, were nearly cut in half. Emerging markets allocations remained stable, despite exceptionally strong performance.

Style, capitalization and sectors: A peak for large and growth? 

When it came to equity style and capitalization trends, our analysis suggested a marked cooling of enthusiasm for mid- and small-cap stocks. Perhaps this was no surprise: this segment of the market typically benefits from lower interest rates — and their allure faded along with expectations for further loosening of monetary policy. 

The flipside of this was heightened momentum for large caps in Q4, helped by rising international allocations and renewed interest in technology exposures. Mid cap weights declined slightly amid relative underperformance through 2025, and small-cap allocations held within a narrow range following earlier boosts from reshoring narratives and rate cut momentum.

These shifts unfolded within a longer-term evolution in style classifications stemming from Morningstar’s 2024 recategorization of prominent mega-cap names. This important structural change continues to influence the appearance of style exposures over time. 

Sector positioning changes were most apparent in Technology and Health Care. Here we saw allocations to Technology moderate as part of a wider trend of managing mega-cap (i.e., Magnificent 7) concentration.

Health Care, meanwhile, registered its first allocation increase since 3Q24 following solid performance, reinforcing its role as a common overweight across advisor portfolios.

Bonds project stability

In our analysis, fixed income allocations reflected a measured response to shifting rate dynamics, with portfolio duration rising modestly to 4.46 years in Q4. This remained comfortably within the typical four- to five-year range. As markets digested three rate cuts in the second half of the year, our analysis suggests that fixed income managers moved out of cash-equivalent positions, allocating more to mortgage-backed securities (MBS) and foreign government bonds. Investment-grade credit exposures, in contrast, remained broadly steady amid a year marked by significant but range-bound spread volatility. Sector allocations also saw an uptick in MBS exposure, and, in line with expectations for a softer US dollar, allocations to foreign government bonds increased.  

A widening opportunity set

Our analysis suggests that advisors entered 2026 balancing cautious risk management with selective opportunity-seeking — reflecting both the increasingly opaque macro backdrop and the diversified pathways that emerged as asset classes continued to break free from the correlations witnessed ahead of Liberation Day.

Already, we have seen a break in the large cap growth and technology stronghold that has guided markets in recent years. Small cap, value and non-US stocks have also shown strong relative performance versus the S&P 500 in early 2026, increasing the likelihood that the shift from large cap and growth may have stamina.

To read more on strategic asset allocation please read New paradigms in equity allocations from our Multi-Asset Group.